Tuesday, Aug 04, 2009
Should they do it?
SKY: Call For BoE Boost As Money Supply Shrinks
The Bank of England is under mounting pressure to create more new cash when it unveils this month's interest rate decision after UK money supply fell to a decade low. Vicky Redwood, from Capital Economics, said: "With the recent bank results highlighting how bad debts are rising sharply, banks are likely just to sit on their cash. So (QE) money is unlikely to make it past the banking system in the near-term."
Posted by alan @ 03:03 PM (482 views) Add Comment
5 Comments
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1. dbc reed said...
Banks are sitting on money; homeowners are sitting on property waiting for prices to go up;developers are sitting on land for the same reason.
Sounds like the perfect economic lock-down (as predicted by Keynes' mentor Silvio Gesell).Not good.
2. uncle tom said...
The money supply has moved away from it's trend of exponential growth, but only slightly.
It is something that is easily made, but harder to destroy, and the growth rate in itself should have set the alarm bells ringing years ago.
In its first round of QE, the BOE sought to underpin the low bank rate by depressing the yields on Gilts, and providing liquidity for the banks.
Now a different dilemma is revealing itself.
As long as we have countries such as China, happy to fill the role of vendor financier; there is a degree of compatibility between a national budget deficit and trade deficit - an excess of goods comes to these shores, and, after passing through the intermediaries, the cash to pay for them ends up as Gilts in foreign ownership.
So we import widgets, and export government IOU's.
The recession has reduced the trade deficit somewhat, but domestic savings have lifted a little. Between them, they might provide an appetite for perhaps £80bn in Gilts over the next year.
So who is going to buy the remaining £100bn of Gilts that are due to be sold?
The choice seems simple - let Gilt yields (and interest rates) rise so as to make them an attractive investment; or indulge another round of QE, and print the money instead.
But with a money supply that is already seriously inflated, printing more because you can't borrow more, looks like a recipe for a loss of confidence, and currency collapse...
3. 20030 said...
Increase quantative easing, give more money to the banks to play in the stock markets, help build another Ponzi scheme so that they can go through another massive round of bonuses.
Whats that you say? The banks were supposed to lend to small/ medium businesses to help them in times of trouble, they were supposed to increase mortgage lending, they were supposed to help entrepeneurs who create jobs.....
Not only has the government failed to bring the banks to task they have created another stock market bubble with tax payer money.
4. paul said...
"I moost say that a fully aproof of this poleecee"
5. vacuouspolitician said...
Does anyone have any confidence in Penfold (King) and his MPC cronies?
Penfold seems absolutely clueless... he remains an establishment dinosaur who is/was given the runaround by the "city whizz kids" (whizz kids implies they are smart... they really aren't smart just greedy...however it seems they are smarter than Penfold ) He remains a utter laughing stock. Full of out-dated theories/practice/slow reactions...he has no clear direction/long term plan and together with this appalling government lost control of the economy years ago...
I can just picture him on Thursday fumbling with all his dodgy data, it falls on the floor and him saying to the rest "oh crumbs!"